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Netflix's Would-Be Competitors Must Get This 1 Thing Right

People don't care about exclusive content as much as the ability to do this.

Netflix(NASDAQ:NFLX) is set to face a bunch of new competition in the very near future. Disney(NYSE:DIS) is launching Disney+ and plans to ramp up investments in Hulu. Still other big media companies are starting their own subscription streaming services. Even tech companies, such as Apple(NASDAQ:AAPL), are joining the market with subscription services. Then there's the growing number of free, ad-supported streaming options.

In determining how big of a threat these new competitors are to Netflix, investors should consider why consumers subscribe to the streaming service in the first place. Analyst Michael Nathanson recently conducted a survey of U.S. Netflix users asking them to rate the importance of certain factors in their decision to subscribe to the service. Here's what he found and what it means for Netflix investors.

Image source: Netflix

All about the experience

While consumers say they love the original series and films on Netflix, what they like even more (in aggregate) is the user experience. Respondents rated not being interrupted by ads, the ability to choose what they watch, and the option to binge-watch as their top reasons for subscribing.

In other words, subscribers really care about the general experience of ad-free on-demand streaming.

Indeed, the most popular shows on Netflix aren't its original series. For example, when Netflix was about to let its license for Friends lapse in 2019 , it caved to subscriber pressure and spent the $100 million to license the 20-year-old show for another year.

If consumers just want an ad-free, on-demand binge-watching service, though, that leaves the door wide open for competition. Apple, notably, creates excellent user experiences with its software and services. That may be one reason the company's been able to grow its Apple Music streaming service so quickly despite having the same 50 million songs as everyone else in the space. A similarly enjoyable experience with Apple TV+ could produce the same subscriber growth results in video streaming -- and potentially steal some of Netflix's market share.

Focus on what differentiates them

Almost any company can offer a premium ad-free subscription video service with just a little bit of work.

In order to get consumers to subscribe, they need something other competitors don't have. For Apple, that's an install base of 1.4 billion devices, the ability to attract high-quality talent, and the cash to give that talent free rein to do whatever they want. For Disney, it's a plethora of high-quality intellectual property, a handful of top production studios, and the best streaming technology in the industry.

But Netflix clearly has something users want besides the ability to stream content ad-free. If consumers simply wanted an ad-free, on-demand, binge-watching service, there are several options cheaper than Netflix, including Amazon Prime. But Netflix's subscriber numbers are only getting bigger as it raises its pricing. Netflix's pricing power is an indication that subscribers are interested in more than just a good user experience. As a result, Netflix may not have to worry as much about a company like Apple, with its superb design chops, coming in and stealing subscribers away.

A message for the competition

The Netflix survey may be more informative to Netflix's would-be competitors than it is for the company itself or its investors. Any company launching a streaming service needs to be sure to get the user experience right. A poor user experience will overshadow the content no matter how good it is.

Apple, as mentioned, probably doesn't have anything to worry about on that front. But it will be designing Apple TV+ on non-native hardware, presenting some new challenges for the company. Disney, likewise, has proven capable of developing good user experiences for its consumer-facing products.

As new services come to market, investors looking to capitalize on the growth of streaming video should pay close attention to what people are saying about how easy it is to find the content they want and other user experiences.

Author

Adam has been writing for The Motley Fool since 2012 covering consumer goods and technology companies. He consumes copious cups of coffee, and he loves alliteration. He spends about as much time thinking about Facebook and Twitter's businesses as he does using their products. For some lighthearted stock commentary and occasional St. Louis Cardinals mania ... Follow @admlvy